A U.S. Virgin Islands judge ordered Takata Corp. to set aside $8 million to cover civil penalties and the cost to drivers who have to replace the defective and potentially fatal air bags. This ruling came a day before the company’s U.S. business filed for bankruptcy protection. Superior Court Judge Michael Dunston signed off on the U.S. Virgin Island government’s request for a speedy ruling on its request for a preliminary injunction. The judge noted that financial markets had frozen Takata stock from trading, and that multiple news outlets at the time were reporting that Takata’s bankruptcy was imminent.
Takata was ordered to put into escrow about $4 million for civil penalties related to violations of the U.S. Virgin Islands’ Criminally Influenced and Corrupt Organizations Act, $1 million for consumer outreach and about $3 million to recoup out-of-pocket expenses incurred by consumers over the air bags. Judge Dunston pointed out that there are slightly fewer than 12,000 affected cars with 18,140 recalled air bags – which have a tendency to explode, especially in humid conditions – and the rate of repair for affected vehicles is significantly lower than the national repair rate.
The Virgin Islands Attorney General Claude Walker said in a statement that the U.S. territory’s suit was filed a year ago, and that at least one air bag explosion had occurred on St. Croix. At a hearing, Deputy Attorney General Carol Thomas-Jacobs asked the court to order Takata to deposit the funds, despite an automatic stay that came into effect when the company filed for bankruptcy. Judge Dunston said that whether his order survives the stay is up to the bankruptcy court. Attorney General Walker said in a statement:
Takata’s bankruptcy filing should not impact [Virgin Island’s Department of Justice’s] prosecution of its case against Takata on behalf of consumers, because an exception to the rule automatically staying cases against bankrupt entities permits government police powers actions to proceed. Otherwise, bankruptcy court would become a safe haven for corporations seeking relief from law enforcement.
A Takata spokesman had this to say relating to the prospects of how the litigation will be affected by the bankruptcy:
Much of the litigation will be stayed while Takata works through the Chapter 11 proceedings. The bankruptcy will help determine how the litigation is ultimately resolved.
As we have previously reported on numerous occasions, Takata said earlier this year that it would plead guilty and pay $1 billion to end a U.S. Department of Justice investigation into the company’s deadly air bag inflators. A little more than a year ago, the National Highway Traffic Safety Administration (NHTSA) levied a $200 million fine on Takata – its largest ever – in a deal that saw the company admit that it failed to tell the agency about the defect despite knowing about it and withholding important information.
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